Windmills against climate change
The earth's temperature is rising at an ominous rate, and there is little time left to keep these changes within reasonable limits. Fossil fuels are slowly being depleted while the demand for energy is on the rise. Our future needs new, environmentally friendly sources of energy. We are therefore pinning our hopes on renewable energies.
2050 — And then what?
15 August 2003, the east coast of the USA: A small fault in the power supply set off a chain reaction culminating in the biggest power outage in the history of the United States and Canada, Everything came to a standstill. It paralysed factories, stopped underground railways and fully-occupied lifts, and left employees facing blank screens: literally all of the lights went out.
We often only become aware of how important energy is when it is no longer available. According to informed estimates, our oil reserves — still our key source of energy — are expected to run out in 45 years. The Shell study forecasts that by then the world energy demand will have doubled or even tripled.
Climate research scientists are calling for a 60% reduction in energy-related CO2 emissions up to 2050 in order to keep the rise in temperature in check. Power generation is the prime cause of CO2 and thus mainly responsible for the greenhouse effect.
The accelerated depletion of raw materials (accompanied by increased demand for energy) and climate change, which has occasioned a spate of natural catastrophes in recent years, point to the need for greater reliance on renewable energies.
The renewable five
Nature provides a wide range of energy forms which could more than cover the world's needs. We only have to use them. In 2002 the worldwide share of renewable energies stood at 13.6%*. This relatively low figure is likely to increase significantly in the future, firstly because our fossil fuels are running out, and secondly due to the urgent need to take action to lower emission levels sustainably.
Combustible renewable resources and waste, referred to as biomass, top the list at the moment. 80%* of renewable energy is currently generated by burning wood, dung, and food waste — particularly in developing countries. Biomass is not entirely an undisputed source of energy, however, as CO2 and other pollutants are released in the combustion process.
Water power, the most established and developed form of renewable energy, has a good 16%* share, followed by geothermal heat with 3.2%*. Solar and wind energy are still below 1%.
The number of offshore wind farms is growing significantly. There are currently three new plants under construction off the British coast, Holland is planning to create two new wind farm sites and Denmark has announced plans to build a second North Sea wind farm (Horn Rev 2). Germany has set itself a target of producing 25,000 MW of electricity from offshore wind farms by 2025.
The long road to clean electricity
From a purely technical point of view, six times as much energy as is currently consumed worldwide could be obtained from renewable energy power plants. Two-thirds of this would come from solar energy, the rest from biomass, wind, water, and geothermal sources.
But there is still a long way to go before we get there. The way specific types of renewable energy will develop can be anticipated at most in the form of trends. Changing political plans, unpredictable technological developments, and the problem of financing mean that forecasts are more likely to be wishful than realistic.
The rapid expansion of renewable energy will require tremendous efforts from the political arena as well as from industry. Banks and insurers will play a key part in this. Munich Re is actively involved in the processes: quite apart from business interests, our corporate responsibility has an important role to play when it comes to protecting the climate.
A market of the future needs innovative risk solutions
Besides facultative reinsurance business, structured insurance solutions are needed to cover the high financial risk. Complex insurance concepts arise from the link between technical, financial and energy-market-related risk factors.
In order to come up with the best possible solution for our clients, our experts in the Special and Financial Risks Division exploit the know-how of a wide range of units in Munich Re. In this way, we can offer risk solutions for offshore wind parks based on our extensive long-term experience with offshore oil platforms and wind power plants.
Against the whims of nature — Weather derivatives
For operators of renewable energy power plants the weather is one of the greatest entrepreneurial risks. If there is too little sun, if there is no wind or if there is too little rain and river levels drop, then renewable energy power plants supply less electricity. It may not be possible to pay back loans. If this were to happen the startup phase, operators may have to fold.
Munich Re offers the option of weather derivatives to hedge against this risk. Weather hedges help weather-sensitive sectors to stabilise their results and to safeguard their existence in the long term. As part of an integrated risk concept, we offer the "renewable energies" sector all-round balance sheet protection. Ultimately, it is in everyone's interest that we put a
stop to climate change, prevent natural catastrophes from increasing further,
and ensure that the lights do not go out in 2050.
Links
>> www.erneuerbare-energien.de
Federal Ministry for the Environment, Nature Conservation and Nuclear Safety on the subject of renewable energies
>> www.renewables2004.de
First international conference "renewables 2004" in Bonn
>> www.wbgu.de
German Advisory Council on Global Change
>> www.ipcc.ch
Intergovernmental Panel on Climate Change
>> www.iea.org
International Energy Agency
* Source: International Energy Agency (IEA)